With numerous challenges over the past several years for producers, we at Mercer Landmark understand the need for a comprehensive risk management solution. We seek to provide our customers with unparalleled service to ensure maximum results.

Archive for December, 2018

CORN – Holiday trading was in session this week with very little news for the commodity markets with the government in partial shutdown. Export announcements are on hold until the government reopens. Even so, US corn is uncompetitive on the world scene with Ukrainian corn the cheapest. If the shutdown is extended, we may not get the January 11th WASDE report on time.

The holiday shortened trading week began on a dull, slightly softer note, but traders returned from Christmas with their selling shoes on. Corn posted a key reversal lower on the charts the same day the stock market set a single day rally of over 1,000 points. News was scarce for the corn market all week. Corn took its direction for its 6 ¾ cent weekly trading range from the wheat and soybean markets. The European Union raised their 2018/2019 corn production figure from 62.9 mmt to 67.5 mmt. The USDA is carrying them at 60.4 mmt.

Weekly ethanol production was released this week since the EIA was not affected by the shutdown. Production fell 4,000 barrels to 1.042 million barrels per day. This is down 4.4% from a year ago. Ethanol stocks dropped from 23.9 million barrels to 23.1 million barrels. This is an increase of 5% over last year. Margins did improve 3 cents per gallon to a negative 5 cents per gallon. There are suggestions that the USDA may be overestimating corn for ethanol usage at 5.6 billion bushels. We will see if there is an adjustment on the January WASDE report.

Weekly export inspections were released this week. Corn inspections were as expected at 39.2 million bushels and a three-week high. However, we need to average 44.9 million bushels per week to hit the USDA’s export target of 2.45 billion bushels.

OUTLOOK: For the week, March and July corn each dropped 3 cents per bushel to $3.75 ½ and $3.90 ½ respectively. December 2019 corn declined 1 ¾ cents to $3.97 ½ per bushel. As we head into 2019, corn will likely be range bound unless South American weather pushes soybeans hard in one direction. Talk about a global economic slowdown may also gain in importance as a focal point. Funds are holding a net long position and without a positive catalyst, we could see further liquidation.

SOYBEANS – This is the type of week you wonder why we bothered to come in. There was a decent amount of action in the soybeans this week, but with very little news to back it up. A key reversal lower at mid-week sent prices to their lowest level since November 27th. This was followed by a rally into the weekend when China announced they would allow US rice imports for the first time in history. Traders interpreted this as a sign that better things are in store for soybeans. However, US rice is currently uncompetitive into China, and it is still under a 25% import tariff. A US delegation will meet with Chinese officials in Beijing the week of January 7th. In the meantime, phone calls have been taking place between the two countries. Without the US government functioning, we do not receive any USDA export announcements. However, there has been no indication in the export or freight markets that any further soybean business has been done with China in the past week. Adding to concern the US and China will reach a deal by March 1 is chatter that President Trump is considering declaring a national emergency that would bar US companies from using telecommunication equipment from two of China’s largest companies, Huawei and ZTE. China also opened their markets to alternative sources of protein. They removed import tariffs on rapeseed meal, cottonseed meal, sunflower meal and palm meal, effective January 1. More cases of the African swine fever were found in China again this week.

Weather in South America is taking on added focus since we don’t have any export business to discuss. Brazil did receive rain prior to Christmas, but there are concerns over what the dryness had already done to the soybean crop. Estimates for Brazil’s soybean production have come down from the 125 mmt plus area to the 120-122 mmt range. This would still be a record crop. There is more rain in the forecast for the dry areas into the first of the year. Argentina has been too wet, raising concerns about wheat quality and soybean production. The BAGE estimated Argentina’s soybean planting at 83% complete versus 84% on average.

Weekly export inspections were below estimates at 23.9 million bushels. This was the lowest inspection number in 11 weeks. We need to average 34.7 million bushels per week to confirm the USDA’s 1.9-billion-bushel export forecast. In other news, the CFTC approved the CME’s proposal to increase daily storage rates for corn and soybeans, beginning with the December 2019 contract for corn and the November 2019 contract for soybeans. The daily rate will increase from .1650 cents/bushel/day to .2650 cents/bushel/day. This roughly equates to an increase from 5 cents/bushel/month to 8 cents/bushel/month. Why do you care? It will likely increase board carries and may affect what storage charges will be in the country in the future.

OUTLOOK: For the week, March soybeans were 2 ¼ cents lower at $8.95 ½, July fell 2 cents to $9.21, and November was down just ¾ cents at $9.35 ¾ per bushel. South American weather will be a major headline into 2019. Will rain in Brazil help? Or will below normal rainfall and above normal heat call for cuts in production estimates? Any news surrounding Chinese trade will sway price direction as well. Let’s get the holiday trade mentality out of the way and hopefully we’ll have concrete news after the first of the year.

WHEAT – Russian State Statistics Service reports that the final figures from the 2018 Russian grain harvest show wheat production at 72.1 million tons and total grain harvest at 112.9 million tons. These figures compare with the record 2017 harvest of 86 million tons of wheat and total grain harvest of 135.5 million tons. Ukraine has exported 10.3 million tons of wheat this marketing year compared to 11 million tons at the same time last year.

March 19 corn closed up 1 ¼ at $3.74 ½ and December 2019 closed up ½ at $3.96 ¼. March beans closed down ½ at $8.82 ½ and November 19 closed down ½ at $9.25 ¼. March wheat closed up ½ at $5.10 ½ and July 19 closed unchanged at $5.25 ¾. Crude oil closed down $1.64 at $44.90.

The corn and soybean markets did their best to bounce back from Wednesday’s outside day lower and stabilize our breaks which took both corn and soybeans for a test of their uptrend support. Corn managed to hang on for a slightly higher close but beans were unable to sustain modest early strength. The break has uncovered some technical and value buying here but not with any real urgency with somewhat limited fundamental information and seasonal timings that can keep participants on the sidelines. No news is not good news for corn and beans which are partly relying on export demand for support and we are not going to have any announcements to confirm if any new business with China (and others) is taking place. We also will not get weekly exports, CFTC data and potentially a Jan crop report if this keeps up.

The weekly export sales report was scheduled to be released Friday but traders have been unable to reach anyone at FAS offices and the voicemail says all staff have been furloughed. It doesn’t look like we’ll be getting that report as long as the shutdown persists and the markets will miss it this week because we would estimate sales of 1.1 to 1.250 mmt of corn, 350-400 tmt of wheat, 2.2 to 2.4 mmt of beans, meal 250-350 and oil around 20 tmt. Reuters confirmed this afternoon that the report has indeed been postponed indefinitely. Trade is still expecting to get the EIA ethanol report tomorrow. Linn estimates ethanol production a little higher (+1% to 1055) with stocks down 1% (or a little less wk/wk) on strong blender demand. Others are estimating a small cut in production.

Lots of talk about Brazilian production losses due to drought. Rains have returned this week although totals have not been heavy and leaving plenty of holes but it appears there is a shift in the overall pattern with more rains in the forecast over the next couple of weeks. Assuming that relief materializes, it should stabilize crop losses. 3-4 weeks ago, many analysts were projecting a 125 mmt+ soybean crop (130 high print) for Brazil where today most have taken the top end off with a 120 mmt type of estimate with (new 113 mmt low print seen today).

Acreage is going to be a bigger topic moving into the new year. The bean/corn ratio is 2.34% which traditionally would signal that beans need to gain further on corn to secure enough acres. That is not the case this year where corn supply is adequate, but bean supplies are extremely burdensome. This ratio will need to tighten or narrow from this level to discourage bean acres. China is only part of our problem contributing to excess bean supply. The bigger issue is planting 89-90 million bean acres the past two years where with strong/record yields we have way overproduced even the most optimistic demand scenarios.

The wheat market rose slightly higher on technical trading. Wheat export sales are estimated at 200,000-600,000 mt. March Chicago wheat has fallen $.28 since the highs back on December 13th.

March 19 corn closed down 6 ½ at $3.75 ¼ and December 2019 closed down 5 ¾ at $3.96 ¾. January beans closed down 6 ½ at $8.93 ½ and November 19 closed down 6 ¼ at $9.42 ¾. March wheat closed up 1 at $5.23 ½ and July 19 closed up 1 ¼ at $5.38 ¼. Crude oil closed down $2.30 at $46.19.

The corn market raised some eyebrows, apparently awakening from its early December slumber. Futures finished lower Thursday and has surrendered $.10 in two days. The previous seven sessions, the corn market was not able to muster more than a $.02 higher or lower close. Volumes picked up today, as the break no doubt interested commercials previously resigned to buying $3.80+ corn. Managed Money traders were viewed net sellers of at least 10,000 corn today, which would leave them net long just over 15,000 combined futures and options.

To absolutely no surprise, weekly export sales were quite strong across the board. New 18/19 corn sales of 1.974 MMT were a marketing year high and nearly double the four week average. The vast majority of this was bought by Mexico (1.339 mmt), who had a large announced sale early last week. Other buyers of note included Japan and Colombia. There was also 0.543 mmt booked for new crop as part of the Mexico sale. Perhaps corn caught some fund long liquidation after mostly playing bystander amid sharp recent declines in other related risk assets? In fact, European corn market (Matif) closed into a new two month high today, despite a big rally in their underlying currency.

Elsewhere, weather watchers will watch to see if prophesized rains fall in dry areas of Brazil early next week. They are important after a month of drying in a couple key spots. Regardless, still plenty of areas that are in very good shape. Argentina corn planting moved up to 60% complete; mostly good weather seen there. Ethanol futures were lower today, mostly in-line with corn, keeping 30-40 cent/bu negative profitability for most plants. US Dollar broke to a two week low. Partially on less rate hikes for next year, partially on an Italian-EU budget deal, and partly on the risk of a gov’t shutdown. Trump signed the Farm Bill, but also said he would not compromise, demanding border wall funding for a gov’t funding bill.

For the 3rd time in the past 6 sessions, soybeans have sold off following an export confirmation to China. This is a terrible signal. It says the market had rallied in anticipation of the business and with the help of fund and other short covering, but now that the trade has arrived, the market is beginning to see past these government purchases recognizes the big picture stat problem with soybeans. China cannot and will not import enough soybeans this marketing year to turn this into a lasting bull market. That is the uncomfortable statistical reality of soybeans.

Export activity has picked up to China and other buyers too. Weekly soybean sales in the old crop totaled 2.836 mmt. A marketing year high. Buyers of note included China, Mexico, Netherlands, Germany, and Egypt. On top of that, the USDA flashed daily sales of 204 tmt of old crop beans sold to China, 257 tmt sold to unknown, 100 tmt of old crop meal sold to Colombia and 427 tmt of corn sold to Mex (373 old crop and 53 new crop).

Brazil’s production prospects have been reduced thanks to weeks of dry and stressful conditions across parts of Parana, Mato Grosso do Sul and Sao Paulo. Rains are forecast to bring relief and stabilize those crops. Crops elsewhere in the country are strong enough to maintain near record potential overall and will offer significant export competition once harvested which is earlier than normal this year. Another less discussed problem is African swine fever which continues to spread across China and infect it hog herd with the deadly disease. This has the potential to reduce demand for soybeans to crush for meal with signs that is already happening.

After a couple of disappointing sessions, there were several positive influences around the market as we went home yesterday. The GASC announced they were in for wheat, there was hope of another strong export sales report and there was some excitement around as to what may come of the Russian meeting Friday morning. And make no mistake, the market is now searching for that next spark to reinvigorate trade. In anticipation of what may have been on the horizon, the wheat complex traded higher throughout the night, but after a disappointing export sales announcement, futures gave back some of its gains. An early flush in both corn and soy briefly took wheat futures lower, but trade battled back and spent most of the session trading slightly higher. The GASC back in for wheat for a third time in less than three weeks had to be the biggest motivator, as we knew overnight offers would be significantly higher than last week – and they were. If nothing else, the fact that the GASC was back in again so quickly should keep Russian wheat prices and World wheat prices in general firm. Russia not winning any business is a huge indication that we are seeing just that.

March 19 corn closed down 3 ¾ at $3.81 ¾ and December 2019 closed down 2 ½ at $4.02 ½. January beans closed down 7 ¾ at $9.00 and November 19 closed down 7 ¼ at $9.49. March wheat closed down 10 ¼ at $5.22 ½ and July 19 closed down 8 ¾ at $5.37. Crude oil closed up $1.55 at $48.49.

The corn market featured its typically sleepy start, but some late selling did generate a little excitement. Corn finished the day with losses, which, believe it or not, is the largest intraday settlement (good or bad) in more than two weeks. Volume remains below average. Managed Money traders were viewed net sellers of about 5,000 corn today, which would leave them net long 30,000 combined corn futures and options. The highlight of the cash was no doubt some overnight “buy” interest on the PNW.

As has been the case for the past week, traders’ attentions were focused elsewhere. Another China bean sale floated through and like last week, it stimulated futures selling rather than buying. Blame trader impatience over the “drip-drip” of buying, or typical “buy the rumor, sell the fact” activity, but the pressure on beans, along with no confirmation of China corn buying, weighed on corn of the day, too. Funds were likely also focused on the Fed decision near the close. As expected, the Fed hiked interest rates a quarter-point, and pledged two more rate hikes in 2019 (they were promising three in their last meeting). Equities were not impressed. The Dow was trading 300 points higher pre-Fed, and 300+ lower after. The Dollar held fast near recent highs.

The weekly EIA report had bearish feature for ethanol, mostly by virtue of an unexpectedly large inventory build. Weekly production, however, was little changed, despite almost daily news stories of plant shutdowns and/or slowdowns. Current production levels would imply a yearly corn-for-ethanol grind of just under 5.6 billion bushels per year, which is close to present USDA forecasts. Elsewhere, end-user markets were little changed. USDA will publish Cattle on Feed and Quarterly Hogs and Pigs reports after the close Thursday.

The soybean market set back following the confirmation of Chinese soybean purchases for the second time over this past week in what is shall we say is, not a good signal. Yes, the export business is welcomed and needed but perhaps the market is beginning to see past the government purchases and seeing the big picture stat problem with soybeans that is unlikely to be fixed by the amount of beans China can/will buy this marketing year. Beans will continue to trade around for the near term in this recent $9.00 to $9.20 type of range established following the Trump-Xi dinner. The gap remains open for now extending to $8.96 1/2. Support comes from the expectation that we likely will see more trade confirmations to China over the coming days and weeks.

Crops in parts of Brazil’s Parana, Mato Grosso do Sul and Sao Paulo has received lots of attention the past couple of weeks as a lack of rain and hot temps have damaged production potential which should lead to private analysts taking the top end off their production estimates. There are very important rains in the forecast in the coming week for these dry areas of Brazil that can stabilize these declines, assuming the rains materialize.

When positive influences start to wane, price action in wheat usually tends to regress rather quickly. The weakness over the past two days could be simply tied to the fact that the optimism that was built into the market over the past two weeks has not yet come to fruition, with the exception that Russian wheat prices, and World wheat prices in general have firmed quite significantly. China has made NO announcement they intend to buy US wheat (hopefully one day they will), and the recent $.30 rally has taken US wheat from being very competitive, to being just on the outside looking in. Once that demand goes away, or the hope of demand (China) does not materialize, it becomes very difficult to keep that momentum alive. The market is now searching for that next spark to reinvigorate trade. There are several more chances this week, with Egypt back in for wheat, export sales on Thursday morning and the outcome of Friday morning’s meeting between the Russian Ag Minister and its country’s suppliers.

CORN – Corn direction continues to be driven by soybeans and wheat, but that may be changing slightly. Demand for corn has been decent, but nothing impressive. Heading into the weekend, it was reported that China may buy up to 3 mmt of US corn, possibly as soon as January. This would help meet a previous agreement to purchase of 7.2 mmt on import quota that is subject to a lower tariff. This helped erase the weekly loss seen in the corn. The December WASDE report was uninspiring as discussed below. Ethanol production margins are weaker, and production has begun to slow down. Since the beginning of December, March corn has traded a boring range from $3.80 to $3.87 ¾ per bushel. Through Thursday’s December 13th close, March corn was down 1 ¼ cents for the week at $3.84 ¼, July was down a penny at $3.98 ¼, and the December 2019 contract was up ¾ cents at $4.03 ¾ per bushel. As of this writing at mid-morning Friday, corn was up 1 to 3 cents on the day.

The December WASDE report on December 11th didn’t provide any surprises to the trade. US ending stocks were up 45 million to 1.781 billion bushels on a decline of 50 million bushels in corn for ethanol and a decrease in imports of 5 million bushels. The average ending stocks trade guess was 1.736 billion bushels. World stocks took a jump of 1.3 mmt to 308.8 mmt and was greater than the trade prediction of 307.2 mmt. Brazil’s corn production was steady at 94.5 mmt and Argentina was unchanged at 42.5 mmt.

Weekly export sales were disappointing at 35.6 million bushels. However, the USDA is forecasting a flat year on year export picture and total commitments are currently running 16% ahead of last year. This week’s sales included an 8.7-million-bushel cancellation to unknown. Let’s hope this isn’t the start of a trend. Presently, the Ukraine is competitive on the world export scene. This month’s WASDE report raised Ukraine’s production 1.5 mmt to a record 35 mmt and their corn exports were raised 1 mmt to 28 mmt. We need 35.3 million bushels of sales per week to hit the USDA’s 2.45 billion bushels export outlook. We sold 6.3 million bushels of new crop corn, bringing total commitments for 2019/2020 to 10.7 million bushels. This is well behind last year’s 40.5-million-bushel total for this time of year.

Weekly ethanol production fell back slightly this week as margins dipped further into the red. Production was down 23,000 bpd to 1.046 million bpd. The 4-week average is lagging last year by 3%. Ethanol stocks dropped 100,000 barrels to 22.9 million barrels. This is 2.3% higher than last year. Net margins declined another 2 cents per gallon to a negative 15 cents per gallon. Margins have been negative for 12 straight weeks.

Informa Economics is pegging 2019 corn acreage at 91.9 million acres, up 2.8 million acres from last year’s 89.1 million planted acres. This was reportedly a survey-based forecast.

OUTLOOK: The demand picture is supportive for corn, but that at times becomes secondary in light of spillover strength from the soybean market. If positive effects from the soybeans fade, the demand for corn may help limit any downside moves. The December 2019 contract is back near $4.05 per bushel. For now, corn action is a sideways grind with March trapped between $3.80 and $3.90 per bushel.

SOYBEANS – China, China, China – it’s all about China! This week we finally saw China return to the US soybean market with a purchase of 1.13 mmt or 41.5 million bushels on Thursday. ON Friday, they bought another 300 tmt. Before the sales confirmations, the trade was anticipating sales of 1.5 mmt to 2.0 mmt. The market’s immediate reaction was a classic “buy the rumor, sell the fact” type trade. The sale did perk up basis levels to the PNW. Many expect China will still buy up to 5 mmt of US soybeans, with more announcements coming. Here is the fly in the ointment, China may be buying US origin now, but as we look at 2019 values, Brazil will be the origin of choice for both China and non-Chinese buyers. Further, it looks as if US acreage switching from soybeans to corn may be much less than earlier estimates of 4-7 million acres. The US will likely be facing a huge soybean carryout unless China stands in for 8 mmt or more. China’s crush margins this week fell to an 18-month low on poor meal demand and oversupply at plants.

The December WASDE report did not make any changes to the US soybean balance sheet. US ending stocks remain at an enormous record 955 million bushels. The trade was expecting a small cut to 936 million bushels. Brazil’s soybean production forecast was up 1.5 mmt to a record 122 mmt. Some private estimates have run as high as 130 mmt. They also increased Brazil’s crop from last year by 0.5 mmt to 120.3 mmt. Argentina’s production was unchanged at 55.5 mmt. World ending stocks jumped 3.3 mmt to a record 115.3 mmt, higher than the pre-report guess of 113.1 mmt. The USDA left China’s soybean imports at 90 mmt. This month’s report seemed to just kick the can down the street until the January 11th report.

Weekly export sales at 29.1 million bushels were as expected, but meal and soyoil sales were marketing year lows. Total soybean commitments are 34% behind last year. The USDA is projecting year on year soybean exports to be down 10.7% this year at 1.9 billion bushels. We need to average 26.7 million bushels of sales per week to hit the target. New crop sales were nearly non-existent at 200,000 bushels. Total new crop commitments are 6.2 million bushels compared to 15.7 million bushels last year.

Brazil’s weather is still generally favorable for crop development but forecasted rain for the latter half of December needs to confirm to avoid raising concerns. Brazil’s truckers are threatening to strike after the new government essentially wiped out the minimum freight rate regulations. With soybean harvest expected to start early this year, this situation will be closely watched.

The Office of Management and Budget has stated that the second round of tariff-related payments will be delayed. No date was given, but they hope to have a determination by the end of the year. They want to see how recent US/Chinese developments pan out. USDA Secretary Perdue, President Trump, and OMB Director Mulvaney were scheduled to meet on the matter December 14th.

OUTLOOK: For the week through the close on Thursday, December 13th, January soybeans were down 9 ¾ cents at $9.07, March down 8 ½ cents at $9.20 ½, and November 2019 down 5 ¼ cents at $9.56 per bushel. At this writing, soybeans were trading a couple of cents either side of changed. The market bulls need to be fed a stream of supportive news, without it, prices may drift into the holidays. Informa Economics is forecasting 2019 soybean acres to fall 4 million acres to 85.1 million planted acres. This number has likely already been incorporated into traders’ ideas.

WHEAT

A lot of times when you have an early week crop report, by Friday, trade seems to be tired. When you throw in a whole bunch of China talk and rumors, the market gets exhausted, and that is how the wheat complex traded today. The SRW wheat contract finished the day the weakest. However, it was a good week for the wheat complex in that it battled back from early week losses.

The rally leading up to the morning pause, which then carried into the start of the day was led by corn and was mainly due to a story from Bloomberg that talked about China starting to buy corn again starting next month, and the amount they are said to be buying is roughly 3 MMT. Now keep in mind, China bought only a little over 300 TMT of US corn last year, so if they do buy around 3.0 MMT, that would be a big boon for the corn market. As far as wheat, still no word, but China did buy a little more than 900 TMT of US wheat last year and more than double that the year before, so when or if any official announcement comes that they are buying US corn, one would think that wheat will be not too far behind.

March 19 corn closed down 1 at $3.84 ¼ and December 2019 closed unchanged at $4.03 ¾. January beans closed down 13 at $9.07 and November 19 closed down 10 at $9.56. March wheat closed up 9 ½ at $5.36 and July 19 closed up 8 ¾ at $5.47 ½. Crude oil closed up $1.47 at $52.83.

Corn was truly the middle child of the ag complex today, trapped between double-digit gains in wheat and double-digit losses in soy. The end result was a back-and-fill session, where corn lower in a $.04 range. Managed Money traders were viewed net sellers of just under 5,000 corn today, which would leave them net short just over 15,000 combined corn futures and options heading home tonight.

Corn continues to struggle to define its own story, as the over-whelming focus of the market is Chinese business (real or theoretical). The USDA finally offered up an announced bean sale, but the rather paltry near-1 mmt total did not exactly set hearts-a-racing. Call it “buy the rumor, sell the fact”, or skepticism we will soon reach the large totals breathlessly rumored last week, but beans did not like it. Many other markets are growing impatient, but the “holding pattern” for corn, as defined by last Sunday night’s gap, remains in place. We shall see. “Other” news flow remains extremely light, which is typical of the weeks leading up to Christmas. We do have the weekly USDA export sales report to discuss. New corn business was close to market forecasts, arriving at 903,200 MT (and 161,400 mt for new). Japan accounted for over half of the business, closely followed by Mexico, the Saudis, Colombia, and New Zealand. This was slightly below the pace needed to meet USDA sales goals for the year.

According to World Weather, South America weather is becoming a little more volatile with drying in interior southern Brazil and in northeastern crop areas over the next week to ten days while east-central Argentina and Uruguay experience flooding rain. Southwestern Brazil crops in the sandier soil are already stressed by dryness and warm temperatures and this may continue into the middle part of next week before significant relief comes along. Crops in the heavier soil types are likely to remain favorably rated for much of the coming week, but will need moisture later this month. All in all, still strong yield potential, but as is almost always the case, some warts develop over the course of a growing season.

The soybean market set back today as we leave a recovery high for a moment. The chart formation is strong but the technicals had become overbought and due for a pull back. A close below $8.97 on Jan tomorrow would give you a weekly key reversal lower and a recovery top. The fund short was cleaned up on the rally, for the most part, taking away some our recent buyers. Funds were back on the sell side today selling an estimated 10,000 beans and 4,000 corn. The market is also struggling with a touch of a hangover following the confirmation of Chinese bean purchases that had been highly anticipated ever since the Trump-Xi dinner following the G-20.

The good news is that all the right things are happening in the cash to suggest there will be more sales announced to China. PNW bids have materialized for Jan-Feb-March. With more potential sales to be announced, prices may continue to hang on at these levels. The bad news is that the risk reward of this market is beginning to shift with plenty of optimism and anticipation priced in already. Now, the focus shifts to the bull to justify further strength either through bigger than expected Chinese trade and/or a weather issue down south.

The USDA confirmed a sale of 1.130 mmt old crop beans sold to China in the daily reporting system. This initial confirmation was modest relative to the recently rumored totals and likely was a disappointment to some. But 1.130 mmt is a big one-day announcement and don’t be surprised to see a string of sales announced in the coming days and weeks that could accumulate to that the rumored 5-8 mmt to replenish government reserves. Additional purchases by private buyers would likely require the removal of the 25% tariff and at this point there is no detail on when that might happen although all the actions and rhetoric since the Trump-Xi dinner (with the exception of the Huawei arrest) point to that result. Another issue for the private crusher is that Chinese crush margins are in the tank due to African Swine Fever and their return to the market.

The wheat complex continued their surprisingly strong trade overnight, and that trend continued during the day. So, what has been behind the recent strength in wheat? We knew the export sales this morning had the possibility at being a marketing year high, and at 754 MT, the sales report did not disappoint. What’s more, Taiwan’s purchase of 110 TMT of milling wheat did not make the report, and only 169 out of the 224 TMT the USDA reported last Friday made the report, so if everything hit, we could have seen a much larger number. The bad news is there is not much in the way of sales this week, and next week’s report may struggle to even reach half of this week’s number. Iraq’s Trade Minister said they have signed an agreement to import US wheat over the first half of 2019, but Iraq already buys wheat from the US. What is bothersome is that Iraq also made another announcement, with the head of the Iraqi Grain Board saying that a Russian delegation is visiting to discuss the possibility of exporting wheat to Iraq. Russia has already opened doors to Brazil and China, and the fact they continue to try to open doors elsewhere does not bode well for the US wheat export program down the road.

March 19 corn closed up ½ at $3.85 ¼ at December 2019 closed down ¼ at $4.03 ¾. January beans closed up 5 at $9.20 and November 19 closed up 4 ¼ at $9.66. March wheat closed up 5 ½ at $5.26 ½ and July 19 closed up 2 ¾ at $5.38 ¾. Crude oil closed down $.48 at $51.36.

Markets were quite firm early, as China threw traders a few extra bones. Futures would close fractionally better. Managed Money traders were viewed net buyers of 5,000 corn today, which would leave them net short less than 15,000 combined corn futures and options heading home tonight. Yep, it was another “China day”. Apparently, the Chinese will allow improved access to their markets for foreign firms and tweak the “Made in China 2025″ policy. Still nothing tangible to lean on for ag trade. This changed a little mid-morning, when wire services reported some purchases of U.S. soy. No official word on other markets, though, including corn.

The weekly EIA report held mostly friendly feature for ethanol this week. Although one could call it a little bearish corn given the drop in production. Weekly production of 1.046 million bbl/day was -2.2% lower wk/wk, which would consume just under 5.60 billion bushels of corn over a marketing year. Weekly export sales report tomorrow should continue on their recent near ~1 mmt/wk trajectory. Note, the large Mexican sale reported earlier this week will likely not make it in this report. 200,000 metric tons of “other sales” will make it in, however. The U.S. remains competitive on world export markets, though we are not alone, as Ukraine is also in the running, followed not too distantly by South American sellers.

The soybean market extended its rally into a new recovery high. The recovery in beans off the September contract low has been driven by a combination of short covering, a slowly improving chart posture and a growing sense of optimism that we could resolve the trade dispute with China. The recent meeting between President’s Trump and Xi did represent a breakthrough that was further validated with today’s news that China bought US soybeans for the first time since July. Reuters reported a 500 mt package of beans was bought off the PNW for Jan-Feb-March while our sources report that total was closer to 2.4 mmt and bought by China. Beans bought for Chinese government reserves are subject to the 25% tariff up front but my understanding is that the tariff will be rebated back.

The recent rumors had China buying 5-8 mmt of US beans to replenish government reserves so today’s relatively modest total likely was a disappointment to some but don’t be surprised to see a string of sales announced in the coming days and weeks. As far as a larger trade deal there is still lots of work to do before the March deadline and the purchase of US agriculture is the easy part of the negotiation. This is a good will gesture that not only will help to narrow the trade deficit. When all is said and done but will hopefully lead to the removal of tariffs and importantly, help grease the wheels on stickier issues like intellectual property and technology theft.

Another headline invigorated trade overnight after President Trump indicated that China was ‘back in the market’ for US soybeans. For wheat, it is hard to explain what kept prices firm throughout the day. Heavy rains across Argentina, Uruguay and southern Brazil over the next two weeks received a lot of attention today. Some regions in those country’s still have half of its harvest still to go, and with expectations for some of those said areas to possibly get as much as 20 inches of rain over the next 16 days means quality loss will be an issue. Another story that was bantered around centered on Russian export concerns. Maybe that came about because of the limited offers the GASC received in its tender overnight or because the Russian wheat offers were some $6.00 above where they were just last week. Either way, there are some that are trying to bring back up the possibility that eventually the Russian Ag Minister will put a halt to wheat exports. At this point, that is hard to believe considering the USDA just raised Russian wheat export expectations to 36.5 MMT, and that so far this marketing year Russia has exported around 21 MMT. This means they still have around 15 MMT to export. Granted quality has been and will continue to be a bit of a problem, but there will need to be a lot more to happen for any halts in exports to come to fruition.

March 19 corn closed up ¾ at $3.84 ¾ at December 2019 closed up 1 ¾ at $4.04. January beans closed up 5 ¼ at $9.15 and March 19 closed up 5 ½ at $9.28 ¼. March wheat closed down 4 ¼ at $5.21 and July 19 closed down 1 ¼ at $5.36. Crude oil closed up $.64 at $51.84.

To no real surprise, the Dec WASDE had precious little impact on price action today. The market instead focused on positive “noises” coming out of U.S.-China trade negotiations, though there is still little tangible to lean on. Corn would finish the day higher on light volume, given that it was a WASDE day. Managed Money traders were viewed net buyers of about 5,000 corn today, which would leave them short less than 20,000 combined futures and options heading into tonight.

As expected, the USDA made no adjustments to U.S. corn production, but did spend a little time on the demand side of the ledger. No doubt in response to poor industry profitability, the USDA reduced the corn-for-ethanol grind by 50 million bushels from their Nov estimate, taking it to 5.6 billion bushels. They also trimmed imports by 5 mil bu. The end result was a small 45 million bushel increase in U.S. 18/19 carryout expectations to 1.781 billion bushels (vs. 2.140 bil last year and 2.293 the year before that). The world balance sheet saw a few token changes, all of which were probably justified. The end result was a modest (+1.3 mmt) increase in world carryout expectations to 308.8 mmt, which is still a notable reduction from 340 mmt in 17/18 and the recent high-water mark of 350 mmt in 16/17.

Missing in the above was any adjustments to South America, which is probably fine at this early juncture. Ahead of the USDA, CONAB updated their thoughts on Brazil’s crop, pegging full year corn production at 91.1 mmt, which was firmed up from a range of 90-91 last month. The USDA is currently sitting at 94.5 mmt for Brazil, which compares to 82 mmt last year. USDA is sitting at 42.5 for Argentina, which compares to just 32 mmt last year. South America weather will remain mostly favorable, despite some drying in southwestern Brazil and erratic rainfall in far southern Argentina. U.S. weather shaping up for a more seasonable last half Dec.

The soybean market remains stuck in its ‘wait and see’ posture as the bull is angling for a size Chinese purchase confirmation (and growing impatient for that evidence to surface) while the bear is afraid to sell the market because of the potential for a sharp trade relief rally. This leaves the market in a sideways choppy range for a moment where gap support remains just below $9.00 and the recent highs just above $9.20 has limited the recovery.

There was plenty of trade news in the headlines overnight and this morning that hinted at an impending announcement. The phone call between the Chinese Vice Premier and US trade reps reportedly went well and included discussion on the purchase of US ag products as well as a timetable or roadmap for the next stage of trade talks. China is also planning to reduce auto tariffs from 40% to 15% in a clear sign of de-escalation. President Trump tweeted that ongoing talks with China are going well, adding to watch for some important announcements regarding China. With all of that noise, it was somewhat of a let-down that we didn’t have any business confirmed at the 8:00 daily report time. The White House reportedly will delay the second half of farm aid payments as they want to see if recent progress in talks leads to a resumption of trade.

The December crop report has a reputation as being somewhat of a dud and it certainly lived up to that today. The report confirmed the burdensome supply side realities of domestic and global soybean stocks but this was anticipated. All things considered, beans handled the report well and settled near the day’s high. The US soybean carryout was left unchanged at 955 million bushels with no changes on either side of the balance sheet. The meal and oil balance sheets were similarly unchanged. On the WASDE, Brazil’s soybean production was raised by 1.5 mmt to 122.0 mmt with higher yields noteded in the Center-West of the country while Argentina was left unchanged at 55.5 mmt. Brazil’s beginning stocks were raised by 1.6 mmt to 25.15 mmt. This took the world soybean carryout from 112.08 mmt to 115.33 mmt. Chinese soybean imports were left unchanged at 90 mmt. World meal stocks were up slightly from 12.1 mmt to 12.14 mmt on larger Indian meal production. World oil stocks were raised slightly from 3.64 mmt to 3.73 mmt.

Price action leading up to the crop report was surprisingly two-sided, considering it was hard to imagine that too many around trade could have possibly been looking for friendly data. Because of the slow export pace of HRW wheat, it was thought that HRW wheat exports were going to be lowered, and that US carryout could increase more than people think. The USDA obliged, lowering HRW exports 40 MB(Spring was increased 5 mil bu and SRW was increased 10 mil bu), thus lowering overall US export expectations 25 MB down to 1.0 BB. They also raised HRW wheat ending stocks by 42 MB and overall US ending stocks to 974 MB. After a somewhat muted reaction, wheat prices started to sell-off.

The break may have been muted some following this morning’s news headlines of renewed optimism that a US/China trade deal is moving forward. There was a report that said China had submitted a proposal to its cabinet toward cutting tariffs on US made cars from 40% down to 15%. Keep in mind, this plan has not yet been finalized and could change. Also, China media sources reported that the country would soon announce the details of their first soybean purchases, most of which will go to national reserves. However again, the timing of that announcement was not specified. And finally, Chinese Vice Premier Liu also spoke with the US Treasure Sec Mnuchin and US Trade Rep Lighthizer by phone where they exchanged opinions on implementing the consensus reached during the Trump-Xi dinner 10 days ago.

March 19 corn closed down 1 ½ at $3.84 at December 2019 closed down ¾ at $4.02 ¼. January beans closed down 7 at $9.09 ¾ and March 19 closed down 6 ¼ at $9.22 ¾. March wheat closed down 6 at $5.25 ¼ and July 19 closed down 2 ¾ at $5.37 ¼. Crude oil closed down $1.61 at $51.20.

The corn market started the week in quietly lower fashion, finishing with penny-plus losses. Volume was very light as traders wait impatiently for some word out of China on the mooted ag purchases. There is also a monthly WASDE due out tomorrow, which also squelched activity. CFTC Commitment of Traders data after the close, delayed from Friday, found the expected fund buying in the corn market through 12/4. The agency found large non-commercial (aka “Large Spec” traders were net buyers of 63,584 corn, which included 51k+ new longs and 12k shorts covered.

Elsewhere, Crop Progress reports are over for the year, though U.S. weather is expected to take on a more seasonable track for the balance of December. Above-average temps nationwide may help bring in a few stranded bushels in the field? South American weather stays mostly favorable, excepting some dryness in SW Brazil. Rains may return to that area Christmas week. Stay tuned. South Africa, a minor net exporter, also struggling with crop losses amid drought. End-user markets were generally weaker today; ethanol and dairy both traded to new lows.

Amid all the China hullaballoo, the December crop report is rapidly sneaking up on us, and will be released mid-morning tomorrow (Tuesday). This is a pure “balance sheet” report, and major changes to U.S. corn production or yield are unlikely. Demand could be in the crosshairs, but with a few decent weekly export sales reports under its belt lately, they may wait until January to make changes. May see a few small increases in world production, too. Keep an eye on China, as they were the shocker in the November report.

The soybean rally took a breather and gave back Friday’s gains as the market continues to consolidate above $9.00. There was no fresh news on the China trade front and the market anxiety is growing by the day with a lack of confirmation despite lots of rumors and signals that something could be announced soon. There is chatter of 5.0 to 8.0 mmt of soybeans to be purchased by the Chinese government to replenish reserves but the timing of an official announcement or confirmation is unknown. Both the US and China have taken efforts to distance trade talks from the Huawei arrest last weekend which is calming some nerves in the markets where it was feared the incident would derail recent progress. The USDA flashed 125 tmt of new crop beans sold to unknown along with the big sale of corn to Mexico (1.105 mmt of old crop and 541 tmt of new crop) as world buyers look to front run any potential sales announcement to China.

Assuming no Chinese confirmation tomorrow morning, that leaves the soybean market to contend with the crop report on its own. A focus on the statistical realities as we know them today spells trouble for soybean prices. The question is, will sellers continue to hold back with the threat of a Chinese trade development whipsawing the market? That has been the case since the Trump-Xi dinner and really has been the case in the weeks leading up to it. With the crop report spotlighting a domestic carryout near 950 million bushels and a world carryout above 112 mmt, it could be a real challenge for beans to defend these recent gains. It will be interesting to see what kind of stops we find if SF takes out last week’s $8.97 low and fully closes the gap.

The wheat complex struggled to find any footing today, but it was not a complete washout as trade today did not give back all of Friday’s gains. Both Chicago and Mpls each finished the day lower. Much of the markets strength on Friday came on the heels of the USDA announcement of 224 HRW sold to Unknown, along with other fresh business. In fact, last week was a very active export week for wheat, and even though the export lineup at the start of this week is quiet, do not be surprised if we see that pace pick up again as other countries around the World may need or want to facilitate their needs ahead of any US/China trade announcements. However, Friday’s rally did not help.

Tomorrow is crop report day. The December crop report is usually low key, and we see only marginal changes, but it is hard to imagine US ending stocks to do anything but increase thanks to the slow export pace of HRW wheat. We will see some minor adjustments in the World numbers, mainly Australia and the question is will the USDA be able to find anything to offset the Aussie reduction we are going to see. That may be the wild card of the report. Still think that US carryout could be increased more than people think especially if the USDA lowers HRW export expectations. Friday morning’s sales announcement may curtail that thinking some, but we are still behind last year’s pace by around 88 mil bu, and we are almost halfway through the marketing year. If China announces they will buy a significant amount of US wheat, the USDA always could re-adjust back up their expectations.

CORN – Let us pause as we remember former President George H. W. Bush, who passed away last week. December 7th also lives in infamy as we remember those that lost their lives on this day 77 years ago. Markets sparked higher in the first session and first day of a new month after the historic meeting between President Trump and Chinese President Xi in Buenos Aires December 1st. The meeting was deemed a success on both sides and the markets surged higher. Details were thin on how the differences between the two were going to be resolved. Comments continued throughout the week that the talks were going smoothly, but again, no details. Corn could benefit from a deal by opening the market for DDGs, sorghum, and ethanol.

Most of the week’s news was associated with the soybean market. Corn’s price direction has been driven by firm demand, soybean prices, and South American weather. Even though corn managed a higher weekly close, the news was pedestrian after the Chinese meeting. Unless the December 11th WASDE report gives us some fuel for another rally, corn may be setting up for range bound trade into the end of the year.

Weekly export sales were excellent at 46.4 million bushels and bringing us to 17% ahead of last year’s commitments. We need 35.3 million bushels of sales per week to hit the USDA’s target of 2.45 billion bushels. If South America’s weather forecast is correct, we could be looking at strong competition for corn exports in the first quarter of 2019. Adding to the competition, the Ukraine increased their corn crop estimate to 35.2 mmt compared to the USDA outlook of 33.5 mmt. There were no export sales for the 2019/2020 reported on the weekly sales report. Weekly ethanol production increased 21,000 bpd to 1.069 million bpd, the highest number in 13 weeks. Stocks rose 100,000 barrels to 23.03 million barrels. US gasoline demand is 1.2% behind last year in the current corn marketing year.

OUTLOOK: Corn may be relegated to a sideways pattern without fresh input from the USDA report or a change in the status of Chinese trade talks. Seasonally, corn can rally in December, so be prepared if we inch higher. How the trade winds blow will provide our direction in the next month. For the week, March corn captured a 7 ¾ cent at $3.85 ½, July was 7 ¾ cents higher at $2.99 ¼, and December 2019 closed 3 ¼ cents higher at $4.03 per bushel.

SOYBEANS – January surged 29 cents higher at their high following the US/Chinese meeting December 1st, but disappointed bulls when they only managed to close 11 cents higher on the day. Many had been anticipating close to a limit up or 60 cent move on the positive sound bites at the conclusion of the meeting. A lack of details left some wondering what the 90-day cease-fire really meant. For now, the US will not raise current tariffs, or pile on additional tariffs, that were scheduled to take effect January 1st. If no “real deal” is made by March 1st, the US is prepared to raise the 10% tariff on $200 billion worth of Chinese goods to 25% and could put tariffs on an additional $267 billion worth of goods. For their part, according to the US release, China will purchase “very substantial” farm, energy, industrial and other products. Chinese traders said China will need to cut the 25% tariff on US farm products before they can buy a “substantial” amount of US products, unless the government forces them. It’s surmised, that any Chinese soybean purchases would be made by the government for their state reserves. Brazilian soybeans are still cheaper than US origin before any tariff. Negotiations continue, but events later in the week brought into question how talks will proceed. Late in the week, Meng Wanzhou, the CFO of giant Chinese technology firm Huawei (and daughter of its founder), was arrested in Canada, reportedly at the request of the US. There are allegations that the company re-exported US products to Iran. She is expected to be extradited to the US. How this arrest may affect US/Chinese trade negotiations is unclear. Remember, technology issues were what got us here in the first place.

Was last year’s Brazilian soybean crop underestimated? In November, they exported over 5 mmt of soybeans, more than double what they exported in November last year. Based on calculations, at this pace their carryout could be a negative 8 mmt. In the past, it sometimes hit a negative 2 or 3 mmt, but 8 mmt is huge! No one will be surprised when the USDA makes balance sheets adjusts to account for the tremendous Brazilian soybean exports. Also, out of Brazil this week, the government stated that if you did not pay the minimum freight rate implemented earlier this year, you would no longer have to pay a fine. This essentially did away with the minimum. A definitive January ruling is expected. Some have insisted the minimum freight rate was unconstitutional. The new ruling is expected to eliminate freight barriers in getting the upcoming record crop to market. Brazilian soybean farmers are looking into a proposed railway giving them access to northern export ports. The $3.24 billion project could cut transportation costs from Mato Grosso to export ports by 30% from the current $2.34/bushel. Argentina’s costs are estimated at $1.24 per bushel and the US at 93 cents/bushel, according to Agroconsult. Celeres this week pondered that with favorable weather Brazil could produce 130 mmt of soybeans this year. The CEO of a large Brazilian grain producer stated at an industry event that 106 million acres of untapped grassland in Brazil could be brought in agricultural production. Their combined soybean, corn, and sugarcane acres is currently at 158 million acres.

Weekly export sales were at the upper end of trade estimates at 32.7 million bushels. However large, we slipped to 33% behind last year when the USDA is forecasting a 10.7% year on year drop in exports. We need 26.7 million bushels of sales per week to achieve the lofty 1.9 billion-bushel USDA export forecast. Last year from this point forward, weekly export sales average a record 21.3 million bushels per week. Without a return of China to the US market, the current export forecast could be quite a stretch. There were only 100,000 bushels of new crop sales reported. This brings new crop commitments to 6 million bushels and well behind last year’s 11.6 million bushels. The October NASS Crush Report was in line with trade expectations with 183 million bushels of soybeans crushed. October soyoil stocks were 2.041 billion pounds compared to 1.909 billion pounds expected.

Argentina has been talking with China to try and capture a portion of China meal import business. This week, China said they will buy 330-400 tmt of soybean oil from Argentina, but said they were not interested in Argentine meal at this time. Trade estimates for the December 11 WASDE report: US ending stocks 945 million bushels versus 955 million in November; world ending stocks 112.79 mmt versus 112.08 mmt last month; Argentine production 55.72 mmt versus 55.50 last month; Brazilian production 120.88 mmt versus 120.50 mmt in November. Some trade estimates for Brazil’s bean crop suggest over 130 mmt, if the weather stays favorable.

OUTLOOK: We continue to be run by tweets and headlines. How the recent arrest of a Chinese technology company CFO will influence the US/Chinese trade negotiations is unknown. Everyone is waiting for China to make that first US soybean purchase. If they buy anything, it will likely be for the state reserve. For now, it’s a wait and see situation. Brazil’s soybean crop was 96% planted by December 4th and 1% is expected to be harvested by the end of 2018. It’s being bandied about that Brazil will be able to ship double the amount of soybeans in January than normal. It’s a waiting game for now, but in the long term we must be cognizant of the enormous crop potential in South America. For the week, January soybeans held onto a 22-cent gain at $9.16 ¾ per bushel, March was 21 ½ cents higher at $9.29, and November 2019 jumped 22 cents higher to $9.61 ¼ per bushel.

Wheat – Egypt did not issue letters of credit for several wheat shipments. This caused some fear in the market about their ability to continue an aggressive import program. Egypt later clarified that LOC’s were issued except for the wheat yet to be delivered. They followed that up with a new tender. The suppliers for the new tender were 290,000 tons from Russia and 60,000 tons from the Ukraine. There were no US offers for this tender. Russia has exported almost 37 million tons of wheat this calendar year. This is a 50% more than the same period last year. Despite smaller production, Russia is doing everything possible to remain the world’s leading exporter. There was a flash sale announcement of 224,000 tons of HRW to unknown. This activity was very welcomed by the wheat market and pushed futures to 15 cent gains on Friday. Wheat export sales were the 2nd best of the marketing year. The SRW business to Egypt was part of this week’s total.